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The history of media industry deals in Australia is, almost uniformly, disastrous.

The debacles of the 1980s. CVC’s acquisition of Nine. Kerry Stokes’ creation of Seven West Media. The spectacular failure of Packer, Murdoch, Rinehart, Gordon et al at Ten.

Not that that has ever stopped an endless series of commentators and business journalists cheering them on.

The common theme from the 1980s onwards has been too much debt and terrible management, which has also plagued what used to be Fairfax, and News Corp, now a husk of a company with the Murdoch family’s worst-performing assets lumped into it.

Now the black swan event of the virus crisis is again exposing the operation of those two factors — and dramatically accelerating the decline of traditional media in Australia. An industry that seemed to have a few years of life is now measuring its viability in months.

Why is debt a problem when interest rates have been at historic lows for the past decade? While debt costs are a tax deduction for companies, there can be too much debt no matter how low interest rates are.

And interest rates are low for a reason — they indicate stagnating economies that are not going to allow traditional media companies to prosper, even without the challenge of the shift to digital advertising.

It is clear many companies allowed their debt levels to rise in the past few years believing that lower interest rates were a positive and not a warning sign. Now they are exposed to a colossal collapse in advertising revenue, while needing to service those high levels of debt.

They can thus try to cut costs, but in the face of an ad revenue collapse, it’s not enough. And some cost cuts are only temporary. Media companies aren’t having to pay quarterly fees on sports rights contracts to the AFL, NRL, soccer, netball and rugby union broadcast contracts at the moment. When the codes resume — probably in 2021 — those costs will need to be met again.

But ad revenues won’t resume in the same way. The big advertisers are also hacking into costs, just like them. The beleaguered Flight Centre spent $169 million in advertising in 2018-19. It is slashing its annual costs by $1.9 billion a year to survive, and marketing will be part of that.

Cruise companies and their death ships will not be around for some time. Qantas and Virgin, facing years of slow and patchy recovery, won’t be big spenders, nor will the banks or major retailers.

And many companies will turn more and more to online rather than return to legacy media. The decline in ad revenue that has plagued the media industry for two decades has been dramatically accelerated by the crisis.

The result is a queue of media companies facing existential threats. Southern Cross Media, which has two national FM radio chains and runs Nine’s regional TV business (written down to nil value a year ago), relisted yesterday after the company raised $149 million of a $169 million share raising, along with an extra $57 million from its bankers.

It ended the day at 11.5 cents, at a total market value of $28 million. Its $353 million of debt last year — when it was already warning of declining revenue — is now over $400 million.

Seven West’s woes are well known. At Tuesday’s close the company had a market value of just $105 million against a gross debt of over $600 million. The only hope is Kerry Stokes’ Seven Group Holdings converting its 41% share into a full takeover, or a recapitalisation like Southern Cross. Seven, which has cut staff pay by 20%, is also trying to sell Pacific Magazines to Bauer for $40 million by tomorrow.

On Wednesday morning that sale seems to have fallen through with news that Seven has suspended its shares and pending an announcement. Seven has started legal action against Bauer to start in the NSW Supreme Court on April 26. Bauer, it seems doesn’t want ti either pay that much or even buy Pacific. Could this deal, if it fails, cause Seven or even Bauer to sink?

For Australian Community Media (ACM), the old Fairfax regional titles bought last year by Anthony Catalano and Alex Waislitz for $110 million, the crisis comes on top of the drought and bushfire catastrophe. Staff have been cut, production centralised, employees at The Canberra Times have been told to take long service leave.

Catalano’s hopes to turn ACM into a property play are dead in the water, and the company’s stake in Prime Media Group, which was bought in a true lose-lose bid to stop Seven from taking over Prime last year, is currently worth half its purchase value.

Investors are waiting for the bad news from the Murdoch family’s second company in early May when the March quarter results will be released. At the end of December, News Corp had US$1.2 billion in cash, down more than 20% from a year ago, and US$1.2 billion in debt, up 20% from a year earlier. It has also invested $700 million in inter-company loans to keep Foxtel afloat. It has already cut hours, casuals and staff at Fox Sports, Foxtel and the far-right asylum of Sky News, as well as suspending 60 community and regional papers from Thursday.

Foxtel’s hopes for its Kayo sports streaming service have collapsed, with major sports suspended. Foxtel has already lost a couple of hundred thousand home subscribers in the past three years and has been desperately trying to convince thousands of subscribers currently ringing up to cancel to instead take a much cheaper package.

News’ best asset is 61% of REA, the bigger of two major online real estate sites (the other is Domain, 59% owned by Nine). Real estate auction clearances fell to just over 39% in Sydney last week, and worse is coming.

Nine Entertainment is in a similar position, but at least has the 100% owned Stan streaming service. Its shares are down 35% so far this year; it has trimmed its debt level to $620 million from $650 million but extended maturity to three and four years, meaning no debt will fall due until 2023 at the earliest.

Nine was already cutting $100 million in costs before the crisis and has suspended production of inserts, told staff to use up leave and revealed another $116 million in cost reduction (the biggest being the 2020 NRL season). Domain is in the same position at News Corp’s REA.

Ten is now owned by ViacomCBS, but how much benefit that will bring isn’t clear — if anything the US media is under even more pressure from the virus crisis. Ten has already cut working fortnights to nine days, cut wages and told staff to take leave.

The best placed company seems to be HT&E, owners of two FM radio networks and an outdoor ad business in Hong Kong that hit trouble last year. In a statement to the ASX it noted it had “no debt, $111 million net cash and $250 million undrawn facilities” and was planning “total non-repeat cost savings of circa $10.5 million in 2020.” But even its shares are down 26% so far this year, despite after a 12% jump on Tuesday.

That list of Australian media companies is now like a queue at an abattoir. Without major government intervention, the decline of legacy media in Australia is about to be accelerated to its natural conclusion.

Tomorrow: can a government with its hands full stopping a pandemic save the media?

Peter Fray

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Peter Fray
Editor-In-Chief of Crikey

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